MobilCom freezes 3G plans, cuts 1,850 jobs

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MobilCom AG plans to cut its workforce by 40% and has frozen plans to roll out a 3G network as the struggling German mobile operator fights for survival. The move is another set-back to 3G hopes on the continent and follows the decision by Sonera and Telefonica to scrap their Group 3G UMTS GmbH joint venture in Germany.

However, the cost of acquiring a license and attempting to develop a 3G network was a big factor in bringing MobilCom to its financial knees. Approximately 1,850 full-time equivalents will lose their jobs out of a total workforce ot 5,000, which amounts to 4,200 full-time equivalents when allowance is made for temporary and part-time staff.

The move is designed to save the company about 130m euros ($127.4m) and return it to profitability in the first half of 2003. With just 4.9 million customers, MobilCom hardly looks a viable proposition. There was fury across Europe when in the run-up to the German election, the company was saved from collapse by the promise of a 400m euro ($392m) government loan.

The European Commission is currently probing the legality of this move, which has infuriated rival carriers since it is contrary to the principles of a free market. But claiming that waiting for an EC decision would take too long to save the company, the government has already advanced 50m euros ($49m).

MobilCom was already far advanced on its 3G roll-out and has rights to 3,600 base station locations across Germany, 1,800 of which now have the necessary buildings and electrical supplies in place, and 900 of which are fully equipped with 3G transmission equipment.

However, its plans were brought to an abrupt halt when debt-laden France Telecom SA, which has a 28.5% stake in the company, decided to cease funding its ambitious plans.

With the first 3G handsets only just appearing on the market, and reports of incompatibility between equipment from different vendors, even the major carriers are downplaying 3G and concentrating on pushing the advantages of 2.5G technologies.

The Economist magazine last week suggested that Europe should abandon W-CDMA technology and switch to CDMA2000, where there is no problem of compatibility because the technology is controlled by Qualcomm Inc. In contrast to the huge problems faced by European operators, those carriers in Asia that have adopted CDMA2000 have seen a rapid take-up in services.